Maine employers could be taxed by the state on federal emergency loans

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Maine businesses and nonprofits could face hefty tax bills for taking out repayable federal emergency loans at the start of the pandemic, unless lawmakers act to align the tax laws of the country. State on Federal Laws.

Maine employers have taken more than $ 2.2 billion in Paycheck Protection Program loans since April, and many expect the loans to be canceled – converted to grants – if they follow the rules from the program.

The canceled portions of the loans are not subject to federal income tax under the CARES Act, which created the loan program. But employers will still have to pay Maine income tax – up to 7% – on the canceled portion of loans, unless lawmakers pass an amendment to state law.

“Maine is not complying with this federal law,” said Trish Brigham, executive director of the Maine Society of Certified Public Accountants. “Even if the loan is canceled federally, you will still have to pay Maine state income taxes.”

More than 27,000 employers in Maine have taken out loans of up to $ 10 million and as little as a few thousand dollars under the program. His intention was to keep workers on the payroll and cover basic business needs until pandemic conditions abated and normal operations resumed. If employers spend at least 60 percent of the loan on payroll and meet worker retention and other criteria, the total loan amount will be forfeited.

But an unexpected tax payment next year on the proceeds of canceled loans from the Paycheck Protection Program could further hurt small businesses emerging from the recession triggered by the pandemic.

Maine accountants warned of the tax implications for small businesses in a May letter to Gov. Janet Mills and urged legislative action to resolve it.

“Failure to comply will impose a Maine income tax on small businesses in Maine that benefit from a canceled PPP loan – which will likely come as a big surprise to many businesses in Maine and directly undermine the intent of the business. PPP to help our small businesses survive. the crisis, ”said the company CPA.

Months later, and with the legislature still not convened, the need to resolve the issue is more urgent, said Mike Santo, a senior executive at Wipfli LLP, a national accounting firm with an office in Augusta.

Some employers will start preparing their tax returns in a few months, and electronic filing programs need time to add new forms to their software, he said. Starting work on a tax compliance bill in January, when the legislature meets for its normal session, leaves little time for that to happen before taxes are due in April.

“We start tax planning in October, sometimes even in September,” he said. “Those months are not far away – I don’t see companies suddenly at 2019 levels in a few months.”

Lawmakers have been pressured to return to Augusta for a special session to complete unfinished business and review bills intended to improve the state’s response to COVID-19.

Republican lawmakers last week refused to cooperate with Democratic majority leaders to call a special session, saying they only wanted to discuss limiting the governor’s authority in a state of emergency and measures related to the pandemic. They also raised health concerns regarding meetings to consider non-urgent matters.

The Legislative Assembly Tax Committee will meet next week to discuss a number of bills, possibly including a tax compliance measure, said co-chair Senator Ben Chipman of D-Portland. .

“Personally, I don’t think companies should be taxed on the funds they receive from these loans,” Chipman said. “Compliance is something we need to do right now. This is why I support our return to the session.

“We have to deal with it – I don’t think it will be controversial,” Chipman added. “We just need everyone to be on the same page to get back into the session, because there are things like this that need to be resolved.”


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